Can you really afford not to be insured?

2013-05-28 10:00

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As insurance costs rise, insurers are now hunting for uninsured drivers, writes Maya Fisher-French

If you are not insured and crash into another vehicle, causing thousands of rands worth of damage, you are liable for those repairs.

Even if the other driver was insured, his insurance company will go after the guilty party and if they are not insured, they will sue them in their personal capacity.

Rather than running this substantial risk, one can insure against third-party claims for about R100 a month.

While insurance companies have always had the ability to go after uninsured drivers to recover the costs of damages, the litigation has not always been worth the cost. That, however, is changing as the profits in the insurance industry are under pressure, mostly due to the fact that only a third of South Africans have vehicle insurance, picking up the tab for the rest of the drivers.

At a recent insurance conference, Santam chief executive Ian Kirk, said: “Insurers have let the rates slide and that is a fundamental issue.”

Basically, insurance companies are currently making losses on motor insurance due to high claim volumes.

Christelle Fourie, the managing director of insurance company MUA, says falling profits are due to a number of reasons. These include low premium charges, an increase in cost of repairs due to the weak rand, the state of our roads (potholes and so on), as well as the number of uninsured vehicles and the number of unlicensed drivers on our roads.

“On top of this, we find ourselves in an incredibly competitive market with motor rates being driven down in spite of the serious warning signs with regards to motor insurance profitability,” says Fourie, who explains that the natural result is that insurers must manage their claims costs extremely well and this includes recovering costs from the guilty third party.

This can include, among other things, insurers threatening to attach personal assets if the driver doesn’t have the required third-party insurance cover.

It is not only beneficial to the insurance company to reclaim damages but also for the insured client.

With two out of every three drivers being uninsured, the chance of being hit by a driver who is without insurance is high, and the insured driver loses their no-claim bonus resulting in an increased premium, and then has to pay the excess for the car to be repaired.

“In my view, claiming from a third party is the prudent and responsible thing for an insurance company to do,” says Rene Otto, the chief executive of insurance company MiWay.

He explains that if his company does not recoup costs, the only option would be to charge higher premiums in general to all their clients.

“In cases where our clients cause accidents, we incur the costs of repairing our clients’ car as well as compensating the third parties for their damages. In the cases where third parties caused the accidents, we incur the costs of repairing our clients’ damages, but we then have the right to recover those costs from the third party.

“If we didn’t do that, we would forego a meaningful source of income, and it would become more difficult to make a profit,” says Otto.

“In my mind, it is not fair to our clients in general to charge them more for insurance just because we shy away from suing the guilty third party who caused the damage to our client’s car. We also have a duty to try and recover our client’s excess as far as possible.”

Otto explains that they would attach assets if it makes sense in the circumstances. “There is no difference in law between a person’s liability from causing damage to someone else’s car and the liability from not paying any other debt.

“We try to avoid attaching someone’s assets by coming to an amicable agreement. But in some cases, it’s our only option.”

The amounts involved in the accident do determine whether or not the insurer will sue as the insurance company needs to take legal costs into account, but they will certainly go after larger claims.

Otto says pleading poverty does not necessarily get the guilty party off the hook.

“In many cases, we reach an agreement whereby the other party pays off the amount in question over a period.”

Fourie says her company, MUA, will do financial checks to determine the individual’s ability to repay the damages claimed, and often the individual agrees to paying the debt off, sometimes up to three years.

If you cannot afford a fully comprehensive insurance, you can still protect yourself from a third-party claim by taking out third-party insurance for as little as R50 to R100 per month, according to Otto.

While the little amount for the third-party insurance will not pay for your own vehicle to be repaired, it will protect you should you bumper bash an Aston Martin.

Compulsory insurance

Fourie says the South African Insurance Association is currently doing research into how compulsory third-party insurance could be initiated.

“There are many challenges of which one is the affordability of this type of insurance,” she explains. “In addition, we must consider that many people are unemployed and the level of premium will determine the success of this scheme.”

Other challenges are around the method of premium payment, whether it is debit order or cash payments, and how this fund will be managed as the Road Accident Fund has been poorly managed.

“At this stage, I believe letting the commercial companies take the lead on the issue, possibly looking at capping the claim amount on third-party for the initial roll out phases. This would allow for a reasonable level of premiums,” says Fourie.

Do you benefit if your insurer sues?

Fourie says her company MUA will reduce the insurance premium back to preclaim level as soon as the recovery is successful. It will also credit the insured with the pro rata portion of the increased premium due to the claim.

MUA will also reinstate the no-claim bonus as if no claim has been submitted against the policy.

Fourie adds that in most cases, the insured will be refunded his or her excess almost immediately after the insurancecompany receives the payment into their bank account.

Otto says MiWay refunds the excess once they have recovered an amount that is equal to or larger than the excess.

“If the excess was R2?000 and the debt R20?000, and we succeed with a partial recovery of, say, R5?000, we will refund the excess,” says Otto, who adds that if the insurer abandons the third-party claim for whatever reason – in most cases because the likelihood of success appears to be slim – the client still has the right to attempt to recover his or her excess from the other party.

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